Report 2003-123 Summary - July 2004
California Children and Families Commissions:
Some County Commissions' Contracting Practices Are Lacking, and Both the State and County Commissions Can Improve Their Efforts to Find Funding Partners and Collect Data on Program Performance
Our review of the state and five counties' California Children and Families Commissions funded by Proposition 10 tax revenues revealed the following:
- The state commission consistently followed contracting rules applicable to all state agencies, but some county commissions lacked well-defined and documented policies and practices for awarding contracts to service providers.
- To monitor service providers, county commissions require them to submit quarterly progress reports as a condition of receiving payment.
- The county commissions maintained significant fund balances as of June 30, 2003, but have earmarked most of these fund balances for specific purposes.
- Although the state and county commissions acknowledge the importance of funding partners, the commissions have received little funding outside their Proposition 10 tax revenues.
- Some county commissions lack clear policies limiting their administrative spending.
- State and county commissions have only recently begun to evaluate program effectiveness and so far have mainly reported demographic and service output data rather than performance outcomes.
RESULTS IN BRIEF
In November 1998, Proposition 10 established the California Children and Families Act of 1998 (Act) to improve the early development of children from prenatal to age 5 and to ensure those childrens' readiness to enter school. To implement these goals, the Act established the California Children and Families Program (Children and Families Program) and created the California Children and Families Commission (state commission) as the lead agency. The Act requires participating counties to establish local county commissions that allocate Children and Families Program funds to local service providers for early childhood development efforts that focus on community awareness, education, health care, social services, and research. Current programs, such as the School Readiness Initiative, aim to improve the health and early learning of some of California's neediest preschoolers. The Children and Families Program is funded by a tax on cigarettes and other tobacco products (Proposition 10 tax revenue), with $560 million available for early childhood development programs in fiscal year 2002-03.
In reviewing how the state commission and a sample of five county commissions have allocated this revenue, we found that the state commission has consistently followed contracting rules applicable to all state agencies. However, our review of some county commissions found a lack of well-defined and documented policies and practices for awarding contracts to community service providers, a deficiency that may confuse the public about the methods these commissions use to allocate funds. State contracting rules do not apply to the county commissions, and the Act requires only that each county commission spend its resources in accordance with a locally adopted strategic plan. Under the Act, each participating county must establish a local county commission, either as an agency of the county or as a separate legal entity. Four of the five county commissions we reviewed are separate legal entities, and our legal counsel has advised us that, while under certain circumstances these commissions may be required to follow the contracting rules of the counties they represent, the county ordinances for all of the county commissions we reviewed do not impose specific contracting practices on these commissions. Accordingly, to assess the county commissions' practices for awarding contracts to community service providers, we examined their self-imposed contracting policies.
Although the Act emphasizes local allocation decisions, county commissions need to establish and consistently follow clear, well-documented practices for awarding contracts to instill public confidence. However, some county commissions' decisions for allocating funds are clouded by a lack of documentation or undermined by poorly defined policies. For example, Kern County's commission, known as First 5 Kern, awarded contracts to service providers under its policy to use any contracting procedure it deems to be in its best interest. When clear policies for allocating funds do exist, they are not always followed. First 5 Santa Clara ignored its policy of limiting the amount of an unsolicited grant to $15,000 by awarding a $1 million grant to a children's museum.
The public may also be confused by some county commissions' allocation of funds through noncompetitive contracting practices that are not entirely open to public scrutiny, as it can raise concerns about whether service providers are competent and charge a fair price. Because state guidance and restrictions on noncompetitive contracts do not apply, the county commissions are free to allocate funds noncompetitively. Some county commissions create public confidence in their noncompetitive allocation processes by awarding contracts at regularly scheduled public meetings, providing the community a chance to express any concerns and scrutinize the choice of service provider. However, some commissions do not always disclose complete and accurate information to reassure the public that funds are being allocated appropriately.
As another means of allocating resources to service providers, the state commission and the county commissions we visited also award contracts to service providers through the solicitation of proposals. This method helps to ensure a fair and appropriate allocation of funds through such techniques as independent review panels to make funding recommendations and requirements that potential service providers submit qualifications, budgets, and scopes of work. Regardless of the allocation method, the ultimate decision on whether to grant funds to service providers rests with the state commission and each locally appointed county commission. To address any potential conflicts of interest associated with these decision makers, the state and each county commission we reviewed have implemented conflict-of-interest policies and practices based upon existing state statutes.
To monitor their service providers, county commissions require them to submit quarterly progress reports as a condition of receiving payment. These reports allow the commissions to ensure that service providers are performing in accordance with their contracts. To show that they are spending funds in line with approved budgets, service providers must also submit quarterly financial summaries of their expenses.
Having spent as little as 15 percent to as much as 67 percent of their revenues on early childhood development programs, the county commissions we reviewed maintained significant fund balances as of June 30, 2003. "Fund balance" refers to the difference between assets, primarily cash and investments, and liabilities. However, several county commissions have earmarked most of these fund balances for specific purposes, such as to pay or extend existing contracts. One county commission's financial plan envisions reducing its fund balance significantly by spending the money on new preschool and children's health programs already approved by its commissioners. Other county commissions' financial plans intend to maintain substantial balances to sustain existing programs in the future as Proposition 10 tax revenues decline. Current investment practices adequately safeguard these funds, with cash balances invested in county pooled investment programs restricted by state law to conservative financial instruments.
State and county commissions acknowledge the important role funding partners can play in supporting early childhood development programs. However, other than in-kind contributions, the commissions have received little funding outside of their state allocations. Although the Act grants the state and county commissions authority to apply for money and services from individuals, corporations, and foundations, efforts by the state and county commissions to create such partnerships have focused primarily on pooling their Proposition 10 tax revenues rather than on identifying and obtaining funds from outside sources.
Although publicly committed to using every dollar possible for direct services to eligible children, some county commissions lack clear policies limiting their administrative spending. Only one county commission we reviewed has an ordinance limiting its administrative costs. Also, statements by county commissions defining what constitutes administrative spending differ. To compare the county commissions' administrative spending, we developed a working definition of administrative costs, and, using that definition, found that some commissions spend a greater proportion than others on such activities. Also, travel policies and reimbursement practices, while generally patterned after their respective counties, varied at the county commissions we reviewed, with some commissions spending a slightly larger percentage of their administrative costs than others on travel.
The Act requires the state and county commissions to evaluate the impact of their respective programs, including how funds are spent, the progress toward goals and objectives, and specific performance outcomes, or effects, measured through appropriate indicators.1 However, the state and five county commissions show minimal reporting of program performance data, or outcome-based data, using reliable indicators. Instead, the state and county commissions have only recently begun to evaluate program effectiveness and so far have mainly reported demographic and service output data rather than performance outcomes.
Having begun awarding funds in 2001, the state commission is in the early stages of gathering information for two long-term assessments of its programs by two external evaluators. The county commissions we reviewed have been gathering data from service providers, but external evaluators cite various limitations of those data. The evaluators observe that most of these data address outputs instead of specific performance outcomes and that some service providers are capturing little or no useful information. Reviews of county commission operations also do not always afford a comprehensive and objective look at performance. Although each county commission we visited undergoes an annual independent financial audit of its operations, following well-established and generally accepted standards, similar reviews of the county commissions' performance are not occurring.
To ensure the appropriate use of program funds and instill public confidence, the Kern and Santa Clara county commissions should adopt and follow well-defined policies to guide their allocation efforts and should also maintain sufficient documentation to support their allocation decisions.
To address the sustainability of their programs, the state and county commissions should continue to take action to identify and apply for any available grants, gifts, donations, or other sources of funding.
To demonstrate its commitment to keeping administrative costs low, each county commission, which has not already done so, should define what constitutes its administrative costs, set a limit on the amount of funding it will spend on such costs, and annually track expenditures against this self-imposed limit.
To ensure that county commissions are basing their funding decisions on outcome-based data, as required by the Act, they should address the concerns expressed by their evaluators to ensure that service providers are collecting these data.
To provide a meaningful assessment of annual performance, the state commission should require each county commission to conduct an annual audit of its performance prior to any future revenue allocations. Such audits should be objective and should follow guidelines designed to critically assess each county commission's performance.
STATE AND COUNTY COMMISSIONS' COMMENTS
The state commission believes that its in-kind funding commitments from public and private entities deserve recognition as successful efforts by the state commission to leverage its funding and secure substantial financial contributions. The state commission believes it has in place the infrastructure to collect outcome data and assess over time the programs funded by the state and county commissions, and has been considering methods of strengthening the existing requirements of the Act relating to audits and data reporting.
First 5 El Dorado stated it maintains a sustainability fund that it believes is a prudent way to protect currently funded programs for a two-year period, however, this fund is not separately reported in its audited financial statements as of June 30, 2003. First 5 El Dorado agrees that it has no written policies regarding administrative costs, and while it has taken various steps to control these costs, it will develop and adopt administrative cost policies. Finally, First 5 El Dorado stated that it continues to review the evaluation process to assure that it is effective and provides reliable data.
First 5 Kern agrees with all our recommendations and will change its process to ensure it maintains adequate documentation of its decisions regarding funding allocations to service providers. It will also ensure that any concerns expressed by independent evaluation committees will be resolved and the evidence retained. First 5 Kern will also continue to explore opportunities for obtaining other sources of funding and has or will continue to address the concerns of its external evaluator regarding the quality and quantity of performance outcomes collected from First 5 Kern's service providers.
First 5 Los Angeles is concerned that the working definition we developed for administrative costs includes costs that it considers to be program costs. First 5 Los Angeles stated its external evaluators are in the process of completing the analyses for two of its four initiatives and will provide summary reports in the Fall of 2004, while the evaluation of its other two initiatives are in the early stages and aggregate outcome data is not yet available.
First 5 San Diego acknowledges that it has no set limit for its administrative costs but is committed to keeping them as low as possible. First 5 San Diego also cited three funding designations that occurred subsequent to those reflected in its June 30, 2003, audited financial statements that appear in our report. First 5 San Diego also provided information concerning claimed programmatic outcomes and added context regarding the length of time and expertise needed to gather and effectively analyze data intended to measure performance outcomes.
First 5 Santa Clara believes that our report lacks an understanding of the extensive collaborative process it uses. It also asserts that our definition of administrative costs fails to include direct service costs and therefore does not account for First 5 Santa Clara's employees that provide direct services to children and their families.
1 As we explain later, performance outcomes are changes in behavior, knowledge, or situation accomplished by providing a service output. For example, an appropriately funded program might demonstrate that children who attend its classes on how to brush their teeth properly (output) have significantly less plaque on their teeth (outcome) than before they attended the classes.